We compare and contrast the approaches taken by the top five European equity managers from Citywire 1000.
A Frenchman, a Scotsman, an Italian, a German and a Belgian are the best placed European equity managers in Citywire’s analysis of over 7,500 individual fund managers.
Citywire 1000 highlights the top performers based on their risk adjusted performance across 98 sectors and ability to generate positive returns over three years to 30 June 2012.
A full 15% of the 1000 run mainstream European equity funds of different forms; Equity Europe, Equity Europe ex UK and Equity Eurozone. Within this pool a variety of styles and backgrounds are found, showing that analysis of individual fund managers is key for investors.
We take a closer examination of the different approaches taken by the top five European equity managers from Citywire 1000.
Damien Lanternier became co-manager of the Agressor fund in April 2008 alongside Didier Le Menestrel, who had run the fund since its launch in 1991.
Lanternier was then handed the sole reins in January 2011 as Le Menestrel, founder of Financière de l'Echiquier, stepped back from day to day fund management and is now the group’s chairman.
A key characteristic that Lanternier looks for is the quality of company management and how they align themselves with shareholders. The style allows freedom to invest across market capitalisations, in both value and growth stocks. This means exposure can move depending on where the best opportunities are being found, with contrarian ideas very much in favour. In 2009 for example there was a move into cyclical stocks and now growth stocks account for around two thirds of the portfolio.
There tends to be over 50% invested in France as this is where Lanternier says he has the most extensive knowledge. However these businesses are generally global nature, a characteristic that he finds particularly attractive. Companies currently in the €920 million portfolio earn more than one third of their revenues in emerging markets.
Alister Hibbert has a track record of running European funds at Invesco and Scottish Widows Investment Partnership before joining BlackRock in 2008. The two funds he currently runs, BlackRock European Dynamic and BGF Continental European Flexible Fund mirror each other and have combined assets of over €1.9 billion.
Hibbert is a bottom-up fundamental investor who has a flexible approach across growth, value and turnaround prospects. Stock selection is the key driver of the Scotsman’s performance and he seeks to find companies that are undervalued given their potential earnings power.
With the troubles in Europe he also looks to macroeconomic conditions when shaping the portfolio. This is making him stay underweight bank stocks and although they have rallied lately, the fund has continued to strongly outperform. Over three years to 30th June the BGF Continental European Flexible Fund has more than doubled the returns of its index, making a gain of 62.5% versus 26.4% for the FTSE World Europe ex UK. Key overweights are in consumer discretionary stocks and basic materials.
The distressed Eurozone has been a difficult hunting ground for fund managers, but Fabio Di Giansante returned 27.2% over the last three years, nearly double that of the MSCI EMU benchmark. This performance on the Pioneer Funds Euroland Equity fund has been achieved with slightly lower volatility than the index.
His style has 75% exposure to what are viewed as core holdings and 25% in positions that look to capture shorter term opportunistic trends. The core element consists of quality businesses that have competitive advantages in their field and tend to be resilient bear markets. The opportunistic picks have a higher beta and are tactical positions that tend to be held for six to nine months.
These positions can act as a macro overlay to rotate the portfolio into more defensive or cyclical parts of the market, as well as a way of picking out overlooked companies. Recent examples have seen him go overweight Italy. He started increasing the position in November 2011 and the country currently makes up 12.3% of the €840 million portfolio.
French bank BNP Paribas is the top holding and a core position. Di Giansante likes its diversification across countries and the quality if its management team, He has recently been adding to Deutsche Bank as an opportunistic holding following the company’s recent strategy update. It is now the second largest position in the fund.
Winkelmann took over the management of Allianz European growth funds after the departure of Carl Dirk Enderlein in October 2009. The funds had built a large following and Winkelmann’s high place in the Citywire 1000 shows his talent has helped to continue rewarding investors.
The Luxembourg domiciled Allianz Europe Equity Growth mirrors the German domiciled Allianz Wachstum Europa. However the latter has a performance fee so investors have been better served through the Luxembourg vehicle. He also runs Allianz Continental European since October 2010 which is domiciled in the UK and sits in the Equity Europe ex UK sector.
Winkelmann’s style sees him look for structural growth opportunities, valuations where growth prospects are not reflected in share prices and catalysts that can trigger a re-rating. This is based on bottom-up stock selection that aims to identify structural growth rather than growth momentum.
Winklemann uses the S&P Europe Large Midcap Growth index as a reference point and his top picks that fit his stock selection criteria include German software company SAP, Danish brewer Carlsberg and Inditex, the Spanish clothing retailer that owns Zara.
Robrecht Wouters is another manager who took up his responsibilities after a colleague’s departure. He became lead manager of the JOHCM European Select Values in September 2008 following Willem Vinke’s five year stint.
His style combines a traditional value approach, where he invests in companies trading at a discount of at least 25% or more to their intrinsic value, with ‘quality’ value characteristics such as a high return on capital employed.
The Belgian’s selective approach has around 40-50 holdings and tends to have half the portfolio invested in large caps.
Value picks in this part of the market have been key contributors to strong risk adjusted performance over the last three years. Wouters has returned 63.5% during this period, nearly doubling the 34.3% rise in the FTSEurofirst 300 index. Wouters has not invested in banks, oil or commodity stocks as they do not exhibit his required characteristics and he believes the key is to invest in companies that control their own destiny.